What are Long-Term Investments?

Long-Term Investments include debt and equity instruments that a company plans to hold beyond the current operating cycle (typically over one year). Examples include:

• Bonds and Notes Receivable: Debt securities held to maturity or available for sale.
• Equity Securities: Investments in the common or preferred stock of other companies for strategic or financial purposes.
• Joint Ventures and Affiliates: Ownership interests in other businesses held for influence or control.

Why are Long-Term Investments Important?

Long-Term Investments are important because they:

• Generate Income: Provide interest, dividends, or capital gains over multiple periods.
• Support Strategic Goals: Allow companies to establish alliances, enter new markets, or influence business partners.
• Impact Financial Position: Represent significant assets on the balance sheet and affect risk and return profiles.

How are Long-Term Investments Calculated?

On the balance sheet, Long-Term Investments are reported at:

1Long-Term Investments = Cost or Fair Value of Investments − Impairment Losses

Where:

• Cost or Fair Value: Depending on classification (held-to-maturity, available-for-sale, or trading), investments are measured at amortized cost or fair value.
• Impairment Losses: Write-downs when the investment’s carrying amount exceeds its recoverable amount.

Additional Considerations

• Classification and Measurement: Accounting standards (e.g., IFRS 9, ASC 320) govern whether investments are held at amortized cost, fair value through profit or loss, or fair value through other comprehensive income.
• Equity Method Accounting: For significant influence (20–50% ownership), investments are accounted for using the equity method, recognizing the investor’s share of earnings.
• Fair Value Disclosures: Companies must disclose valuation techniques and key assumptions used to determine fair values of long-term investments.